Wall Street Relaxes -- For Now

NEW YORK: On Wall Street, the panic over Brazil's de facto devaluation is already easing. After plummeting 261 points almost instantly, the Dow was steadily pulling back by mid-morning as traders stopped hyperventilating and realized, says TIME senior economics reporter Bernard Baumohl, "that the worst part was the act itself -- and that's already over." Brazil, for its part, had to do it. "The government couldn't afford to prop up an overvalued real anymore, so they bit the bullet," says Baumohl, "In the long run, this will probably be good for their economy by cheapening exports and helping cut deficits."

That hasn't quieted the alarm bells at the Treasury Department. Washington now has a political scramble on its hands -- convincing other Latin American countries such as Chile and Argentina to keep their heads. "If this starts a round of competitive devaluations in the region over the next few weeks, then the Asian contagion will have finally arrived," says Baumohl. And then it's definitely coming to America -- with a vengeance. A cheaper real already means bad news on the home front -- one fifth of U.S. exports go to Brazil, and they just got a lot more expensive -- but that's nothing compared to what a region-wide crisis would do. "Wall Street's big sell-offs Wednesday are partly because the markets were so high already -- things will pick up again by the end of the day," says Baumohl. "But if the devaluations spread, all bets are off."